Lululemon's Next Earnings Report on September 3 Could Send the Stock Plummeting. Here's Why.

It hasn't been an easy year for the luxury apparel company Lululemon (NASDAQ:LULU). The stock is down nearly 42% this year, largely due to weakness in North American sales and management's trimming of full-year guidance earlier this year.

The stock now trades at a cheap 11 times forward earnings. But just because a stock looks cheap, that doesn't mean it can't get cheaper, especially in the near term when sentiment is poor.

The company faces a critical earnings report on Thursday, Sept. 3, when it reports its 2026 fiscal year second-quarter earnings results after the market closes. Management will also host a live conference call with analysts.

While it's incredibly difficult to predict how a stock will move in response to a near-term event, Lululemon's next earnings report could send the stock plummeting. Here's why.

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Management could cut guidance again

In the first quarter, Lululemon slashed its full-year guidance, reducing annual revenue growth projections from 2% to 4% to flat or down 1%.

Management attributed the declining guidance to negative press, which hurt sales in the U.S. and China.

In June, Lululemon issued a public apology after a promotional event on the Great Wall of China, where it accidentally used a Japanese instrument while intending to promote Chinese culture.

There has also been a perception that the brand is not innovating enough and that its clothing line is stale.

Since then, analysts have speculated whether the company may have to take down guidance again, given that the guidance still implies improvement in the back half of the year relative to second-quarter trends.

There's been more concern since Dick's Sporting Goods recently reported earnings and lowered guidance due to sectorwide challenges, noting that it increased promotions amid competition.

Dick's doesn't carry Lulu apparel, but that doesn't mean it can't be indicative of broader industry trends.

Last week, Goldman Sachs analyst Brooke Roach reiterated a neutral rating on the stock and lowered its price target by $11 to $111 per share.

Roach noted persistent pressure on demand, weak consumer sentiment, increased promotions, and potential slowing growth in China.

Why the stock could plummet

Obviously, if management lowers guidance again, investors will lose a lot of confidence in the stock in the near term, meaning the company will need to show tangible progress in reversing revenue and earnings trends.

However, as I'd like to reiterate from above, predicting a stock's movement based on a near-term event is extremely difficult.

It's possible that sentiment is already so poor that even a bad earnings report that comes in just a little better than expected is enough to rejuvenate investor interest.

Lululemon still has a decent long-term investment case. The company has built a loyal customer base, as demonstrated by gross margins above 54% in its latest quarter.

Yes, that's down from over 58% a year ago, but still very strong overall. Lulu also has a new CEO starting on Sept. 8. Improved industrywide sentiment and some newer product lines that excite customers could turn the stock around.

But in the near term, it's hard for me to view the stock favorably heading into earnings, given industrywide trends and the company's recent struggles.

Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool recommends Lululemon Athletica Inc. The Motley Fool has a disclosure policy.